Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
(Mark one)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 333-167764-02
Morgan Stanley Capital I Trust 2012-C4
(exact name of issuing entity as specified in its charter)
Morgan Stanley Capital I Inc.
(exact name of the depositor as specified in its charter)
Bank of America, National Association
Morgan Stanley Mortgage Capital Holdings LLC
(exact names of the sponsors as specified in their charters)
New York 38-3867653
(State or other jurisdiction of 38-3867654
incorporation or organization) 38-3867655
38-7033106
(I.R.S. Employer
Identification No.)
c/o Morgan Stanley Capital I Inc.
1585 Broadway
New York, NY 10036
(Address of principal executive (Zip Code)
offices)
Telephone number, including area code: (212) 762-6148
Securities registered pursuant to Section 12(b) of the Act:
NONE.
Securities registered pursuant to Section 12(g) of the Act:
NONE.
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes ___ No X
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ___ No X
Note - Checking the box above will not relieve any registrant required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files).
Not applicable.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
Not applicable.
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ___
Accelerated filer ___
Non-accelerated filer X (Do not check if a smaller reporting company)
Smaller reporting company ___
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
Yes ___ No X
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of the registrant's most recently
completed second fiscal quarter.
Not applicable.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Not applicable.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1)Any annual report to security holders; (2) Any proxy or
information statement; and (3)Any prospectus filed pursuant to Rule 424(b)
or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1980).
4.1 Pooling and Servicing Agreement, dated as of March 1, 2012, by and among
Morgan Stanley Capital I Inc., as Depositor, Bank of America, National
Association, as Master Servicer, Midland Loan Services, a Division of PNC
Bank, National Association, as Special Servicer, Pacific Life Insurance
Company, as Trust Advisor, and Wells Fargo Bank, National Association, as
Trustee, Custodian and Certificate Administrator. (Filed as Exhibit 4.1 to
the Registrant's Current Report on Form 8-K/A filed on August 10, 2012 and
incorporated by reference herein)
99.1 Mortgage Loan Purchase Agreement, dated as of March 9, 2012, between
Morgan Stanley Mortgage Capital Holdings LLC and Morgan Stanley Capital I
Inc. (Filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K/A
filed on August 13, 2012 and incorporated by reference herein)
99.2 Mortgage Loan Purchase Agreement, dated as of March 9, 2012, between
Bank of America, National Association and Morgan Stanley Capital I Inc.
(Filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K/A
filed on August 13, 2012 and incorporated by reference herein)
99.3 Letter, dated August 13, 2013, from the Corporate Trust Services
Division of Wells Fargo Bank, National Association as Custodian to the
Registrant regarding compliance with applicable servicing criteria for
asset-backed securities by Wells Fargo Bank, National Association, as
Custodian. (Filed as Exhibit 99.3 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013, as amended by Amendment No. 1 (as
defined below) filed on October 3, 2013, and incorporated by reference
herein)
EXPLANATORY NOTE
The purpose of this Amendment No. 2 to our Annual Report on Form 10-K
for the fiscal year ended December 31, 2012, as filed with the Securities
and Exchange Commission on March 29, 2013 (the "Original Form 10-K") and
as amended by Amendment No. 1 to our Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission on October 3, 2013 ("Amendment
No. 1"), is (i) to file a revised Report on Assessment of Compliance with
Servicing Criteria for Wells Fargo Bank, National Association, as Certificate
Administrator, dated December 20, 2013 as a replacement to the Report on
Assessment of Compliance with Servicing Criteria filed as Exhibit 33.5 to
the Original Form 10-K, and (ii) to file a revised Attestation Report on
Assessment of Compliance with Servicing Criteria for Wells Fargo Bank,
National Association, as Certificate Administrator, dated December 20,
2013 as a replacement to the Attestation Report on Assessment of Compliance
with Servicing Criteria filed as Exhibit 34.5 to the Original Form 10-K.
Each such replacement is being made as a result of the receipt by the
registrant of a letter, dated December 20, 2013, from the Corporate Trust
Services Division of Wells Fargo Bank, National Association, a copy of
which is filed as Exhibit 99.4 to the registrant's Annual Report on Form
10-K, notifying the registrant of the revised reports referred to in the
preceding sentence and providing certain explanatory information related
to those reports and certain reports previously delivered by Wells Fargo
Bank, National Association, as Certificate Administrator. Wells Fargo Bank,
National Association has informed the registrant that it does not plan to
amend any past Reports on Assessment of Compliance with Servicing Criteria
or related Attestation Reports on Assessment of Compliance with Servicing
Criteria to address omitted transactions from its platform for those
periods prior to 2012. No other changes have been made to the Original
Form 10-K other than the change described above. This Amendment No. 2
does not reflect subsequent events occurring after the original filing
date of the Original Form 10-K.
PART I
Item 1. Business.
Omitted.
Item 1A. Risk Factors.
Omitted.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Omitted.
Item 3. Legal Proceedings.
Omitted.
Item 4. Mine Safety Disclosures.
Omitted.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Omitted.
Item 6. Selected Financial Data.
Omitted.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Omitted.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Omitted.
Item 8. Financial Statements and Supplementary Data.
Omitted.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Omitted.
Item 9A. Controls and Procedures.
Omitted.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Omitted.
Item 11. Executive Compensation.
Omitted.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
Omitted.
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
Omitted.
Item 14. Principal Accounting Fees and Services.
Omitted.
ADDITIONAL DISCLOSURE ITEMS FOR REGULATION AB
Item 1112(b) of Regulation AB, Significant Obligor Financial Information.
The mortgaged property securing The Shoppes at Buckland Hills loan constitutes
a significant obligor within the meaning of 1101(k)(2) of Regulation AB. The
most recent (unaudited) net operating income of the significant obligor for the
2012 fiscal year is $12,393,331.
Item 1114(b)(2) of Regulation AB, Significant Enhancement Provider Financial
Information.
No entity or group of affiliated entities provides any enhancement or other
support for the certificates as described under Item 1114(a) of Regulation AB.
Item 1115(b) of Regulation AB, Certain Derivatives Instruments (Financial
Information).
No entity or group of affiliated entities provides any derivative instruments
for the certificates as described under Item 1115 of Regulation AB.
Item 1117 of Regulation AB, Legal Proceedings.
The registrant knows of no pending legal proceeding (or legal proceeding
contemplated by governmental authorities) against the sponsors, depositor,
trustee, issuing entity, servicers, originators or other parties
contemplated by Item 1100(d)(1) of Regulation AB, or of which any property of
the foregoing is the subject, that is material to security holders as described
under Item 1117 of Regulation AB.
Item 1119 of Regulation AB, Affiliations and Certain Relationships and Related
Transactions.
The information regarding this Item has been disclosed in the Prospectus of the
Issuing Entity filed in a 424(b)(5) filing dated March 26, 2012.
Item 1122 of Regulation AB, Compliance with Applicable Servicing Criteria.
The reports on assessment of compliance with the servicing criteria for
asset-backed securities and the related attestation reports on such assessments
of compliance are attached hereto under Item 15.
The assessment of compliance with applicable servicing criteria for the twelve
months ended December 31, 2012, furnished pursuant to Item 1122 of Regulation
AB by the Corporate Trust Services Division of Wells Fargo Bank, National
Association (the "2012 Wells Assessment") for its platform, discloses that
material instances of noncompliance occurred with respect to the servicing
criteria described in Items 1122(d)(3)(i)(B) and 1122(d)(3)(ii) of Regulation
AB. The 2012 Wells Assessment is attached to this Form 10-K as Exhibit 33.5.
There were no instances of noncompliance for the transaction to which this
Form 10-K relates that led to Wells Fargo's determination that there were
material instances of noncompliance at the platform level.
The remainder of the paragraphs in this response to Item 1122 was provided
by Wells Fargo, and references to the "Company" and "Management" in such
paragraphs are references to Wells Fargo and its management.
The following Material Instances of Non-Compliance have been disclosed by
Wells Fargo Bank, National Association (the "Company"), in its capacity as
Certificate Administrator:
Schedule A
Material Instances of Noncompliance by the Company
Management's assessment of compliance with the Applicable Servicing Criteria
set forth by the Securities and Exchange Commission in paragraph (d) of Item
1122 of Regulation AB as of December 31, 2012 and for the Period, disclosed
that material instances of noncompliance occurred with respect to the servicing
criteria set forth in both of Items 1122(d)(3)(i)(B) and 1122(d)(3)(ii), as
follows:
* With respect to servicing criterion 1122(d)(3)(i)(B), certain reports to
investors did not provide information calculated in accordance with the terms
specified in the transaction agreements.
* With respect to servicing criterion 1122(d)(3)(ii), certain amounts due to
investors were not allocated and remitted in accordance with timeframes,
distribution priority and other terms set forth in the transaction agreements.
Schedule B
Management's Discussion on Material Instances of Noncompliance by the Company
Disclosure: During the Period, Wells Fargo identified Payment Errors (as
defined below) and Reporting Errors (as defined below) on certain residential
mortgage-backed securities ("RMBS") transactions in the Platform. Although no
individually identified error, in and of itself, was found to be material to
the Platform, when the errors were considered in the aggregate, Management
determined that, for Platform purposes, there were material instances of
noncompliance with respect to both Items 1122(d)(3)(i)(B) and 1122(d)(3)(ii) of
Regulation AB.
For purposes of this Schedule B, the term "Payment Errors" means the identified
payment errors that occurred during the Period and that, when considered in the
aggregate, led to Management's determination that there was a material instance
of noncompliance for the Platform with respect to Item 1122(d)(3)(i)(B) of
Regulation AB. For purposes of this Schedule B, the term "Reporting Errors"
means the identified reporting errors that occurred during the Period and that,
when considered in the aggregate, led to Management's determination that there
was a material instance of noncompliance for the Platform with respect to Item
1122(d)(3)(ii) of Regulation AB.
The identified Payment Errors and Reporting Errors on such RMBS transactions
were attributable to certain failures in processes relating to waterfall
calculations and reporting that, although adapted over time, still
insufficiently addressed the impact of the unprecedented levels of collateral
degradation in RMBS transactions on the calculation of principal and interest
payments and losses and associated investor reporting.
Scope of the Material Instances of Noncompliance: The identified Payment Errors
and Reporting Errors that led to Management's determination that material
instances of noncompliance with respect to the Platform had occurred were
limited to certain RMBS transactions in the Platform. There were no identified
Payment Errors or Reporting Errors for non-RMBS transactions in the Platform
which contributed to Management's determination that there were material
instances of noncompliance for the Platform. In some instances, the identified
Payment Errors which contributed to Management's determination that there were
material instances of noncompliance for the Platform were also considered
material to the transactions on which they occurred. None of the identified
Reporting Errors which contributed to Management's determination that there
were material instances of noncompliance for the Platform were considered
material for a particular transaction. For all transactions in the Platform
(including RMBS transactions with identified Payment Errors and Reporting
Errors), Management delivered an Item 1123 certification to the extent it was
required to do so pursuant to the requirements of the applicable transaction
documents and Regulation AB. Where there was an identified Payment Error that
was considered material for an individual transaction, the Item 1123
certification included a description of the nature and scope of such error.
Remediation: Appropriate actions have been taken or are in the process of being
taken to remediate the identified Payment Errors and Reporting Errors that led
to Management's determination that material instances of noncompliance with
respect to the Platform had occurred. Further, adjustments have been or will be
made to the waterfall calculations and other operational processes and quality
control measures applied to the RMBS transactions in the Platform to minimize
the risk of future payment and reporting errors.
Further Disclosure^1: Earlier this year, the Staff of the Securities Exchange
Commission issued a comment letter to an issuer of certain residential
mortgage-backed securities with questions regarding its 2012 Form 10-K filings.
Three of the questions posed on such comment letter pertained to Wells Fargo's
Schedule B discussion of the material instances of noncompliance on its
platform set forth above. The comment letter questions and Wells Fargo's
response to such questions are set forth verbatim below beginning with the
second succeeding paragraph (the "Comment Letter Questions and Wells Fargo
Responses").
^1 This section of Schedule B was not in the original Assessment of Compliance
with Applicable Servicing Criteria dated February 28, 2013.
(page)
The statistics about Identified Payment Errors and Identified Reporting Errors
(as such terms are defined in the responses below) set forth in Wells Fargo's
responses below were based on information known as of February 28, 2013, the
date of the original Assessment of Compliance with Applicable Servicing
Criteria. As of the date of this amended assessment of compliance with
applicable servicing criteria, Management is aware of an additional 18
Identified Payment Errors and an additional 29 Identified Reporting Errors.
The additional errors were found both on platform transactions that are
denoted as omitted transactions on Appendix A hereto and on non-omitted
platform transactions. The discussion in the below responses about the
Identified Payment Errors and Identified Reporting Errors, including
statements about remediation, is applicable to these additional Identified
Payment Errors and Identified Reporting Errors.
Comment Letter Questions and Wells Fargo Responses^2:
5. The report of Wells Fargo Bank, N.A. ("Wells Fargo") on its assessment of
compliance with applicable servicing criteria states that "certain failures in
processes relating to waterfall calculations and reporting that, although
adapted over time, still insufficiently addressed the impact of the
unprecedented levels of collateral degradation in RMBS transactions on the
calculation of principal and interest payments and losses associated investor
reporting." Your description is unclear. With a view towards disclosure please
explain:
* the specific failures in processes relating to waterfall calculations and
reporting;
* what you mean by "unprecedented levels of collateral degradation" and why
that would have any effect on the calculation of the waterfall; and
* what you mean by "adapted over time."
Response: For purposes of Wells Fargo's response to questions 5, 6 and 7 of the
Staff's Comment Letter, reference is made to the following defined terms.
* "2012 Assessment" means, with respect to its Platform, the assessment of
compliance with applicable Item 1122(d) servicing criteria prepared by
management of Wells Fargo relating to the 2012 Reporting Period.
* "2012 Attestation" means the compliance attestation report of KPMG LLP, the
independent registered public accounting firm engaged by Wells Fargo to
issue such compliance attestation report in connection with the 2012
Assessment, for the 2012 Reporting Period.
* "2012 Item 1122 Compliance Reports" means the 2012 Assessment and 2012
Attestation.
* "2012 Reporting Period" means as of and for the year ending December 31,
2012.
* "Identified Payment Errors" means, with respect to the 2012 Reporting
Period, the payment errors identified in the normal course of business and
through specific procedures performed in connection with the preparation of
the 2012 Item 1122 Compliance Reports that led to the determination that
there was a material instance of noncompliance for Wells Fargo's Platform.
* "Identified Reporting Errors" means, with respect to the 2012 Reporting
Period, the reporting errors identified in the normal course of business and
through specific procedures performed in connection with the preparation of
the 2012 Item 1122 Compliance Reports that led to the determination that
there was a material instance of noncompliance for Wells Fargo's Platform.
* "Model" means the Model Input, the Model Program and the processes related
to the Model Input and the Model Program that function together for the
purpose of calculating payments in accordance with the requirements of
relevant transaction documents.
* "Model Errors" refers to Model Input Errors and Model Program Errors.
* "Model Input" means data that is transmitted electronically or manually to a
Model such as data from a servicer, data from financial services information
providers, cash adjustments (such as reimbursable expenses) and information
from programs that perform interim calculations.
^2 This section of Schedule B was not in the original Assessment of Compliance
with Applicable Servicing Criteria dated February 28, 2013.
(page)
* "Model Input Errors" means inaccurate or incomplete Model Input information,
inaccuracies in receiving or processing Model Input information or
inaccuracies in manual non-automated processing that lead to payment errors.
* "Model Program" means Model programming logic designed to calculate payments
in accordance with transaction document requirements.
* "Model Program Errors" means inaccurate or incomplete programming or logic
in the Model that does not produce calculations in accordance with the
transaction documents and therefore causes payment errors and/or reporting
errors.
* "Platform" means the trustee/master servicer/securities administrator/paying
agent platform designed by Wells Fargo that corresponds to the 2012
Assessment consisting of approximately 2000 RMBS transactions in addition to
other commercial mortgage-backed security and asset-backed security
transactions.
* "RMBS" means residential mortgage-backed securities.
* "Wells Fargo" means the Corporate Trust Services division of Wells Fargo
Bank, N.A.
* the specific failures in processes relating to waterfall calculations and
reporting;
Response: Wells Fargo develops a unique Model for each transaction in its
Platform. On the whole, there are millions of calculations performed by the
Models each payment period for the thousands of transactions in the Platform.
Wells Fargo's waterfall payment calculation and reporting functions can be
categorized into three processes:
* Model Inputs,
* Model Programs, and
* transmission of each Model's output to the processes and systems that generate
investor reports.
In the 2012 Reporting Period, there were 84 Identified Payment Errors on RMBS
transactions^3.
* 40 of the 84 Identified Payment Errors resulted from Model Input Errors. For
example^4, in certain transactions, defaulted fixed rate loans became subject
to unanticipated rate modifications when the loans were modified in accordance
with industry loan modification initiatives. Because the transaction documents
did not contemplate the rate modifications, the Model Input process had to be
manually adapted to incorporate the rate changes. Model Input Errors occurred
when the manual adjustments were made.
* 44 of the 84 Identified Payment Errors resulted from Model Program Errors.
For example, in many RMBS transactions, at the point credit support is
depleted (i.e. the principal balance of the subordinate bonds is reduced to
zero), payment allocations to the remaining senior bonds shift from a
sequential payment priority to a pro rata payment priority. In many cases,
the transaction documents require such shift to occur "on and after" the
month in which credit support is depleted and in other transactions the shift
occurs "after" the month in which credit support is depleted. Model Program
Errors occurred when some Model Programs shifted payment allocations from
sequential to pro rata in the wrong month inconsistent with the applicable
transaction documents. In addition, with respect to transaction documents
which direct the payment priority shift "on and after" credit support
depletion, Model Program Errors occurred because proper effect was not given
to the word "on". There is an order of operations in every waterfall that
directs payments to bonds first and allocations of losses to bonds second.
Because credit support depletion most often occurs from the allocation of
losses to subordinate bonds, this order of operation (i.e. payments first;
losses second) would have to be
^3 While there were also some Identified Payment Errors on CMBS and ABS
transactions in the Platform, Schedule B to the 2012 Assessment says "[T]he
identified Payment Errors and Reporting Errors that led to Management's
determination that material instances of noncompliance with respect to the
Platform had occurred was limited to certain RMBS transactions in the Platform.
There were no identified Payment Errors or Reporting Errors for non-RMBS
transactions in the Platform which contributed to Management's determination
that there were material instances of noncompliance for the Platform".
Accordingly, the statistics provided in this response relating to Identified
Payment Errors and Identified Reporting Errors are limited to RMBS transactions
in the Platform.
^4 Because it would be impractical to provide a detailed explanation of each of
the 84 Identified Payment Errors, Wells Fargo has endeavored in its responses
to questions 5, 6 and 7 to provide meaningful examples of the Identified
Payment Errors and Identified Reporting Errors. The examples are illustrative
but not representative of every individual error or error type.
(page)
reversed to make a payment priority shift on the credit support depletion
date. Model Program Errors occurred when the order of operations was not
reversed in this manner.
For the 2012 Reporting Period, there were 148 Identified Reporting Errors on
RMBS transactions^5.
* 84 of the 148 Identified Reporting Errors resulted from the 84 Identified
Payment Errors. Inaccurate payments led to inaccurate reporting.
* 64 of the 148 Identified Reporting Errors were unrelated to the Identified
Payment Errors.
* 36 of the 64 Identified Reporting Errors resulted from
inaccurate/incomplete bond reporting. Some examples of these 36
Identified Reporting Errors include inaccurate reporting variables related
to investor payments, incorrect tranche balance reporting and incorrect
trigger reporting.
* 28 of the 64 Identified Reporting Errors resulted from
inaccurate/incomplete mortgage loan reporting. Some examples of these 28
Identified Reporting Errors include incorrect information on the
collateral statement portion of the investor report, inaccurate
delinquency reporting and inaccurate loan level performance reporting.
* what you mean by "unprecedented levels of collateral degradation" and why that
would have any effect on the calculation of the waterfall; and
Response: "Unprecedented levels of collateral degradation" refers to the
significant decrease in mortgage loan performance experienced by RMBS
transactions generally over the past several years. The significant decrease in
loan performance is evidenced by the fact that over 50 percent of the RMBS
transactions in Wells Fargo's Platform have reached credit support depletion.
This is a significant event because waterfall payment priorities for the senior
bonds typically change at that point.
One reason why high levels of RMBS mortgage loan performance degradation affect
waterfall calculations is because such degradation contributes to Model Input
Errors. One example of such Model Input Errors relates to the extensive level
of mortgage loan delinquencies and the resulting extensive levels of servicer
advancing. High levels of advancing lead to both high advance recoveries by
servicers in single distribution periods and increased servicer stop advance
decisions^6. These phenomena require manual processing which can result in Model
Input Errors.
The high level of RMBS mortgage loan performance degradation has also
contributed to Model Program Errors. The extensive collateral losses in RMBS
transactions have triggered waterfall scenarios that were considered unlikely
to occur at the inception of the transactions (if they were considered at all)
and were not as clearly detailed as other provisions in the transaction
agreements that direct waterfall calculations and distributions. At Model
creation, those waterfall scenarios were not forecasted to reach the levels of
underperformance that RMBS mortgage loans have experienced. Because of such
lack of forecasting and the absence of benchmark data^7 for such scenarios from
the underwriters/sponsors of the transactions or other sources, Wells Fargo was
unable to test and validate such waterfall scenarios. As a result, Model
Program Errors occurred.
* what you mean by "adapted over time."
Response: "Adapted over time" refers to the fact that Model Programs and Model
Inputs and the processes related to Model Programs and Model Inputs are, over
the life of a transaction, constantly being adjusted in an effort to ensure
accurate payments. Continual adjustments are required because the transactions
and securities to which the Models relate are very complex and the technology
and processes related to Model Programs and Model Inputs are equally complex.
The level of adjustment needed for Model Programs, Model Inputs, and related
processes increased as mortgage loan performance degradation increased.
6. We note reference to "Payment Errors" and "Reporting Errors." With a view
towards disclosure, please explain whether these are the same type of Payment
Errors and Reporting Errors that were described in Wells Fargo's assessment of
compliance for 2011 that you further described in a response to us on December
31, 2012. In that response letter, Wells Fargo
^5 See footnote 1.
^6 A stop advance decision is made by a servicer when, with respect to any
advance made in the past or any proposed future advance, it determines that
such advances will not be recoverable from collections on the loan or from
liquidation proceeds.
^7 There were principally two types of benchmark data used: decrement tables
and underwriter/sponsor cash flow projections. The decrement tables in offering
documents generally only projected out at pricing speeds with zero loss
assumptions. Reconciling Models with those decrement tables based on those
assumptions would not have exposed the stresses on the Model Programs resulting
from the significant mortgage loan performance degradation in recent years. In
addition, cash flow projections received from the underwriters/sponsors at the
time of deal issuance were projected at minimal losses which were not severe
enough to expose the stresses on the Model Programs resulting from the
significant collateral degradation in recent years.
(page)
confirmed the correction and resolution of modeling errors and that indicated
that adjustments to payments were made in 2012. If these are not the same
type of errors as those that occurred in 2011, please state so. In either
case, with a view towards disclosure, please explain:
General Response: The Identified Payment Errors and the Identified Reporting
Errors were generally similar in type to the payment and reporting errors that
led to the determination that there was a material instance of noncompliance
for the 2011 assessment of compliance. However, the transactions on which the
errors occurred and the exact circumstances and details giving rise to the
Identified Payment Errors and Identified Reporting Errors in 2012 were
different than 2011. The correction of the 2011 identified payment errors and
reporting errors was specific to the Models for the affected transactions and
such corrections do not preclude the possibility that a similar type of error
would occur on a different transaction with a different Model in 2012.
Examples of Model Program Errors that occurred similarly in both years involve
(i) post-credit support depletion loss allocation methodology and payment
priority rules (e.g., pro rata versus sequential), and (ii) the calculation of
group-directed cash flows, interest calculation elements (rate, accrual day
logic, etc.), and pre-credit support depletion loss allocation.
Examples of Model Input Errors that occurred similarly in both years involve
(i) improper coding of cash adjustments and using incorrect prior month data,
(ii) loan modification inputs related to capitalization of delinquent amounts
and the recovery of advances related thereto and modified interest rates in
certain transaction structures, and (iii) cash adjustments related to servicer
advance reimbursements that caused errors in certain calculations (e.g., the
net weighted average coupon rate calculations).
Comparing the Identified Reporting Errors to the identified reporting errors in
2011, a substantial number in each year were caused by the payment errors
(i.e., reporting an incorrect payment). There were other reporting errors in
both years that related to missing and incorrect bond information and missing
and incorrect mortgage loan information.
* whether the payment errors resulted in overpayments or underpayments to
investors;
Response: In most cases, the Identified Payment Errors were a combination of
overpayments to one or more classes of investors or transaction parties and
corresponding underpayments to one or more other classes of investors or other
transaction parties. Therefore, most of the Identified Payment Errors consisted
of overpayments and underpayments that netted to zero because all the cash that
was received from a transaction party in a payment cycle was distributed to
investors or other transaction parties on the related payment date^8 .
* the types of reporting errors that occurred and how they related to the
payment errors;
Response: 84 of the 148 Identified Reporting Errors were caused by the
Identified Payment Errors in that the incorrect payment led to incorrect
reporting. Since the Identified Payment Errors were calculated incorrectly, the
payments were reported incorrectly. The remaining 64 of the 148 Identified
Reporting Errors were not caused by the Identified Payment Errors. Those 64
Identified Reporting Errors consisted of missing or inaccurate information
related to various bond reporting and mortgage loan reporting elements.
* whether investors whose payments were impacted were notified of the errors
and, if so, how they were notified;
Response: Investors received notice of the Identified Payment Errors by means
of the posting to Wells Fargo's website of corrected payment date statements.
Investors received notice of Investor Reporting Errors by either a revised
statement in connection with a restatement^9 of the affected distributions or by
correcting the reporting error on the next payment date statement.
* whether any underpayments were paid or will be paid to investors and, if so,
when the payments were made or will be made; and
^8 While most Identified Payment Errors netted to zero, a small number of the
Identified Payment Errors did not net to zero. Identified Payment Errors that
did not net to zero occurred when, inadvertently, either (i) less than 100
percent the cash that was received from a transaction party (such as a
servicer) in a payment cycle was distributed to investors or other transaction
parties on the related payment date leaving cash in the transaction's
distribution account or (ii) an amount greater than 100 percent of the cash
that was received from a transaction party (such as a servicer) in a payment
cycle was distributed to investors or other transaction parties on the related
payment date causing an overdraft of the transaction's distribution account.
The scenario described in clause (i) explains the majority of circumstances
where overpayments and underpayments did not net to zero.
^9 As used in this response, the term "restatement" and the phrase "restating
affected distribution periods" means the correction of an overpayment or
underpayment experienced by a class of book-entry securities by (i) submitting
a revised payment date statement for each affected distribution period to the
Depository Trust Company ("DTC") by which the DTC adjusts the accounts of the
overpaid and underpaid classes, and (ii) the posting of such revised payment
date statement to Wells Fargo's website. In accordance with its current policy,
the DTC revises up to twelve months of affected distributions. On a limited
number of occasions when the affected distribution periods extended beyond such
twelve month time frame, Wells Fargo included adjustments for the additional
distribution periods in the restatement of the twelve distribution periods and
notified investors of this fact on the revised payment date statements. The
process is similar for physical securities except that Wells Fargo interacts
directly with affected holders as opposed to interacting with the DTC.
(page)
Response: With one exception^10 , Identified Payment Errors that resulted in
underpayments to investors were rectified by means of restating affected
distribution periods. The restatements occurred between February 1, 2012 and
March 1, 2013.
* whether any future payments were adjusted to account for overpayments.
Response: With one exception described in footnote 8, Identified Payment Errors
that resulted in overpayments to investors were rectified by restating the
affected distribution periods. Except with respect to one Identified Payment
Error on one transaction unrelated to the transactions to which the Comment
Letter relates, no future payments were adjusted in connection with overpayment
errors. In that one case, distributions to one class of certificates were
adjusted over three distribution dates and such adjustment was disclosed on the
respective distribution date statements.
7. While we note that Wells Fargo further states that "[a]ppropriate actions
have been taken or are in the process of being taken to remediate" the
identified errors and "adjustments have been or will be made to the waterfall
calculations and other operational processes and quality control measures
applied to the RMBS transactions in the Platform to minimize the risk of future
payment and reporting errors." This disclosure, however, does not provide any
indication as to the nature and scope of the failures, or the impact of the
identified material instances of noncompliance. We believe a more granular
discussion is necessary to understand how these steps have addressed the
identified material instances of noncompliance. With a view towards disclosure,
please explain:
* the specific actions that have been taken or are in the process of being
taken to remediate the identified payment errors and reporting errors;
Response: Except as discussed in footnote 8, Wells Fargo has remediated all of
the 84 Identified Payment Errors through restatements of the affected
distribution periods. The restatements occurred between February 1, 2012 and
March 1, 2013. Wells Fargo has remediated all 148 Identified Reporting Errors
by either issuing a revised statement in connection with a restatement of the
affected payments or by ensuring that the reporting element in question was
correctly reported on the next payment date statement.
* the specific adjustments that have been or will be made to the waterfall
calculations and other operational processes and quality control measures
applied to the RMBS transactions in the platform; and
Response: Wells Fargo has determined to address not only the specific errors
that led to the determination of material instances of non-compliance on the
RMBS component of its Platform, but also to take proactive measures to identify
other problems with its Models that could cause payment or reporting errors.
Accordingly, Wells Fargo has undertaken an expansive project to identify,
rectify and prevent problems with its Models and the individual transactions
that exhibited these problems. Wells Fargo is in the early stages of this
project. Due to the size of the RMBS component of its Platform, this is a long
term, intensive project involving significant internal and external resources.
In conjunction with other steps taken, Wells Fargo believes that this
initiative will result in ongoing improvements to its payment and reporting
processes.
* any other steps that Wells Fargo has undertaken or will undertake to ensure
that similar errors do not occur in the future.
Response: Throughout 2012 and 2013, Wells Fargo has adopted numerous other
initiatives in an effort to add rigor to its operational processes and quality
control measures. The initiatives relate to both preventing Model Errors and
identifying and correcting Model Errors. Examples of measures to prevent Model
Errors include, among other things, enhancements to its (i) new Model creation
procedures, (ii) procedures for pre-closing review of waterfall language in
transaction documents, and (iii) procedures for pre-payment date testing of
transaction level payment calculations and reporting elements. Examples of
measures to identify and correct Model Errors include, among other things, (a)
enhanced procedures relating to Model revisions, (b) the creation of a team
charged with conducting a careful analysis of every Model Error to determine if
any additional controls are necessary to prevent the errors from re-occurring,
and (c) the creation of a team to proactively perform Model Program corrections
to prevent future Model Errors. Wells Fargo has hired over two dozen additional
staff and reorganized various teams to more effectively manage the
above-mentioned operational processes and quality control measures.
Material Instance of Noncompliance by any Vendor
NONE
Material Deficiencies in Company's Policies and Procedures to Monitor Vendor's
Compliance
NONE
^10 There is one underpayment of $4992.92 (and a corresponding overpayment of
the same amount) from March 2012 which has not been remedied. The underpayment
did not occur on any transaction to which the Commission's Comment Letter
directly relates. Wells Fargo is in the process of determining an appropriate
course of action with regard to this underpayment.
Item 1123 of Regulation AB, Servicer Compliance Statement.
The servicer compliance statements are attached hereto under Item 15.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Exhibits.
(4.1) Pooling and Servicing Agreement, dated as of March 1, 2012, by and
among Morgan Stanley Capital I Inc., as Depositor, Bank of America, National
Association, as Master Servicer, Midland Loan Services, a Division of PNC
Bank, National Association, as Special Servicer, Pacific Life Insurance
Company, as Trust Advisor, and Wells Fargo Bank, National Association, as
Trustee, Custodian and Certificate Administrator. (Filed as Exhibit 4.1 to
the Registrant's Current Report on Form 8-K/A filed on August 10, 2012 and
incorporated by reference herein)
(31) Rule 13a-14(d)/15d-14(d) Certification.
(33) Reports on assessment of compliance with servicing criteria for
asset-backed securities.
33.1 Bank of America, National Association as Master Servicer (filed as
Exhibit 33.1 to the Registrant's Annual Report on Form 10-K filed on March 29,
2013 and incorporated by reference herein)
33.2 Berkadia Commercial Mortgage LLC as Servicing Function Participant
(filed as Exhibit 33.2 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013 and incorporated by reference herein)
33.3 Midland Loan Services, a Division of PNC Bank, National Association as
Special Servicer (filed as Exhibit 33.3 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013 and incorporated by reference herein)
33.4 Pacific Life Insurance Company as Trust Advisor (filed as Exhibit 33.4
to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
33.5 Wells Fargo Bank, National Association as Certificate Administrator
33.6 Wells Fargo Bank, National Association as Custodian (filed as
Exhibit 33.6 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013, as amended by Amendment No. 1 filed on October 3, 2013, and
incorporated by reference herein)
(34) Attestation reports on assessment of compliance with servicing criteria
for asset-backed securities.
34.1 Bank of America, National Association as Master Servicer (filed as
Exhibit 34.1 to the Registrant's Annual Report on Form 10-K filed on March 29,
2013 and incorporated by reference herein)
34.2 Berkadia Commercial Mortgage LLC as Servicing Function Participant
(filed as Exhibit 34.2 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013 and incorporated by reference herein)
34.3 Midland Loan Services, a Division of PNC Bank, National Association as
Special Servicer (filed as Exhibit 34.3 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013 and incorporated by reference herein)
34.4 Pacific Life Insurance Company as Trust Advisor (filed as Exhibit 34.4
to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
34.5 Wells Fargo Bank, National Association as Certificate Administrator
34.6 Wells Fargo Bank, National Association as Custodian (filed as
Exhibit 34.6 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013, as amended by Amendment No. 1 filed on October 3, 2013, and
incorporated by reference herein)
(35) Servicer compliance statements.
35.1 Bank of America, National Association as Master Servicer (filed as
Exhibit 35.1 to the Registrant's Annual Report on Form 10-K filed on March 29,
2013 and incorporated by reference herein)
35.2 Midland Loan Services, a Division of PNC Bank, National Association as
Special Servicer (filed as Exhibit 35.2 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013 and incorporated by reference herein)
35.3 Pacific Life Insurance Company as Trust Advisor (filed as Exhibit 35.3
to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
35.4 Wells Fargo Bank, National Association as Certificate Administrator
(filed as Exhibit 35.4 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013 and incorporated by reference herein)
35.5 Wells Fargo Bank, National Association as Custodian (filed as Exhibit
35.5 to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
(99.1) Mortgage Loan Purchase Agreement, dated as of March 9, 2012, between
Morgan Stanley Mortgage Capital Holdings LLC and Morgan Stanley Capital I
Inc. (Filed as Exhibit 99.1 to the Registrant's Current Report on Form
8-K/A filed on August 13, 2012 and incorporated by reference herein)
(99.2) Mortgage Loan Purchase Agreement, dated as of March 9, 2012, between
Bank of America, National Association and Morgan Stanley Capital I Inc.
(Filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K/A
filed on August 13, 2012 and incorporated by reference herein)
(99.3) Letter, dated August 13, 2013, from the Corporate Trust Services
Division of Wells Fargo Bank, National Association as Custodian to the
Registrant regarding compliance with applicable servicing criteria for
asset-backed securities by Wells Fargo Bank, National Association, as
Custodian. (Filed as Exhibit 99.3 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013, as amended by Amendment No. 1 filed
on October 3, 2013, and incorporated by reference herein)
(99.4) Letter, dated December 20, 2013, from the Corporate Trust Services
Division of Wells Fargo Bank, National Association as Certificate
Administrator to the Registrant regarding compliance with applicable
servicing criteria for asset-backed securities by Wells Fargo Bank,
National Association, as Certificate Administrator.
(b) See (a) above.
(c) Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Capital I Inc.
(Depositor)
/s/ Steven Stern
Steven Stern, President
(senior officer in charge of securitization of the depositor)
Date: March 28, 2014
Exhibit Index
Exhibit No.
(4.1) Pooling and Servicing Agreement, dated as of March 1, 2012, by and
among Morgan Stanley Capital I Inc., as Depositor, Bank of America,
National Association, as Master Servicer, Midland Loan Services, a Division
of PNC Bank, National Association, as Special Servicer, Pacific Life
Insurance Company, as Trust Advisor, and Wells Fargo Bank, National
Association, as Trustee, Custodian and Certificate Administrator. (Filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K/A filed on August
10, 2012 and incorporated by reference herein)
(31) Rule 13a-14(d)/15d-14(d) Certification.
(33) Reports on assessment of compliance with servicing criteria for
asset-backed securities.
33.1 Bank of America, National Association as Master Servicer (filed as
Exhibit 33.1 to the Registrant's Annual Report on Form 10-K filed on March 29,
2013 and incorporated by reference herein)
33.2 Berkadia Commercial Mortgage LLC as Servicing Function Participant
(filed as Exhibit 33.2 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013 and incorporated by reference herein)
33.3 Midland Loan Services, a Division of PNC Bank, National Association as
Special Servicer (filed as Exhibit 33.3 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013 and incorporated by reference herein)
33.4 Pacific Life Insurance Company as Trust Advisor (filed as Exhibit 33.4
to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
33.5 Wells Fargo Bank, National Association as Certificate Administrator
33.6 Wells Fargo Bank, National Association as Custodian (filed as
Exhibit 33.6 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013, as amended by Amendment No. 1 filed on October 3, 2013, and
incorporated by reference herein)
(34) Attestation reports on assessment of compliance with servicing
criteria for asset-backed securities.
34.1 Bank of America, National Association as Master Servicer (filed as
Exhibit 34.1 to the Registrant's Annual Report on Form 10-K filed on March 29,
2013 and incorporated by reference herein)
34.2 Berkadia Commercial Mortgage LLC as Servicing Function Participant
(filed as Exhibit 34.2 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013 and incorporated by reference herein)
34.3 Midland Loan Services, a Division of PNC Bank, National Association as
Special Servicer (filed as Exhibit 34.3 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013 and incorporated by reference herein)
34.4 Pacific Life Insurance Company as Trust Advisor (filed as Exhibit 34.4
to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
34.5 Wells Fargo Bank, National Association as Certificate Administrator
34.6 Wells Fargo Bank, National Association as Custodian (filed as
Exhibit 34.6 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013, as amended by Amendment No. 1 filed on October 3, 2013, and
incorporated by reference herein)
(35) Servicer compliance statements.
35.1 Bank of America, National Association as Master Servicer (filed as
Exhibit 35.1 to the Registrant's Annual Report on Form 10-K filed on March 29,
2013 and incorporated by reference herein)
35.2 Midland Loan Services, a Division of PNC Bank, National Association as
Special Servicer (filed as Exhibit 35.2 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013 and incorporated by reference herein)
35.3 Pacific Life Insurance Company as Trust Advisor (filed as Exhibit 35.3
to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
35.4 Wells Fargo Bank, National Association as Certificate Administrator
(filed as Exhibit 35.4 to the Registrant's Annual Report on Form 10-K filed on
March 29, 2013 and incorporated by reference herein)
35.5 Wells Fargo Bank, National Association as Custodian (filed as Exhibit
35.5 to the Registrant's Annual Report on Form 10-K filed on March 29, 2013 and
incorporated by reference herein)
(99.1) Mortgage Loan Purchase Agreement, dated as of March 9, 2012, between
Morgan Stanley Mortgage Capital Holdings LLC and Morgan Stanley Capital I
Inc. (Filed as Exhibit 99.1 to the Registrant's Current Report on Form
8-K/A filed on August 13, 2012 and incorporated by reference herein)
(99.2) Mortgage Loan Purchase Agreement, dated as of March 9, 2012, between
Bank of America, National Association and Morgan Stanley Capital I Inc.
(Filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K/A
filed on August 13, 2012 and incorporated by reference herein)
(99.3) Letter, dated August 13, 2013, from the Corporate Trust Services
Division of Wells Fargo Bank, National Association as Custodian to the
Registrant regarding compliance with applicable servicing criteria for
asset-backed securities by Wells Fargo Bank, National Association, as
Custodian. (Filed as Exhibit 99.3 to the Registrant's Annual Report on
Form 10-K filed on March 29, 2013, as amended by Amendment No. 1 filed
on October 3, 2013, and incorporated by reference herein)
(99.4) Letter, dated December 20, 2013, from the Corporate Trust Services
Division of Wells Fargo Bank, National Association as Certificate
Administrator to the Registrant regarding compliance with applicable
servicing criteria for asset-backed securities by Wells Fargo Bank,
National Association, as Certificate Administrator.
